New York Updates Proposed Adult Use Dispensary Regulations

Written by David Pejovic

Feldman Legal Advisors is pleased to share the recent changes to the New York State proposed adult use cannabis revised regulations, which were released by the Cannabis Control Board (CCB) and Office of Cannabis Management (OCM) last week. Below is a summary of the most noteworthy changes that we believe will be of interest to our clients and friends, as well as activists and those interested in the adult use cannabis industry.

True Party of Interest and Financial Interest Changes. True Party of Interest (TPI) is a term used in the regulations to refer to any person or entity that has a financial interest in a marijuana business. This includes owners, investors, lenders and other entities with a financial stake in the business. Each TPI must be identified and disclosed to the State in order for the business to obtain a license. The True Party of Interest definition of a person with a right to receive aggregate payments from an applicant or licensee, as part of a risk sharing or goods and services agreement, that exceeds the greater of: 10% of gross revenue, 50% of net profit, or $100,000, has been updated to reflect a $250,000 threshold, replacing the previous $100,000 threshold. This change applies to determining whether an individual or entity has a financial interest in an applicant or licensee. Previously known as the “10/50/100 Rule,” it is likely that this will now be referred to as the “10/50/250 Rule.”

Receivership. Due to the federal illegality of cannabis, federal bankruptcy courts generally are unavailable to state-legal adult-use cannabis businesses, which poses serious issues to troubled businesses that are seeking a court ordered liquidation or restructuring remedy. In the revised regulations, the OCM has introduced a receivership provision that allows an individual to be appointed as a receiver to temporarily operate a licensed cannabis business for a specified period determined by the CCB in cases of business turbulence. While the appointment needs to be authorized by the office, it is unclear whether a pre-approved receiver list will be used to expedite the process.

Cap Table Disclosures. Disclosures now need to be made for owners in a cannabis applicant that have above 10% interest if that applicant is a private entity and 5% if that applicant is a publicly traded entity. This includes TPIs in parent and holding entities that relate to all persons that meet the interest thresholds mentioned above as well as any person with future rights of ownership or revenue. 

Registered Organization Fees and Entry Timeline. Registered Organizations (RO) and Registered Organizations with Dispensing (ROD) are the ten currently licensed medical cannabis operators who will be the only major companies to be allowed to vertically integrate their operations, so they can grow, process and sell in the adult use market. A $20 million special license fee has been established for these ROD licenses, with payments made in installments. The first installment of at least $5 million is due at the time the ROD license is issued, and the remaining $15 million will be paid by the earlier of the opening of the ROD’s second co-located dispensary or in $5 million installments paid within 30 days of each $100 million in revenue generated by the ROD. That said, the full special license fee must be paid by December 31st, 2033, unless aggregate NY State cannabis retail and wholesale revenues are less than $20 billion, in which case the ROD will not be responsible for further payment installations of the special fee. Even if the ROD license is relinquished, the special license fee is due. Additionally, in a major acceleration in planned timing, starting December 29th, 2023, registered organization co-located retail cannabis stores can begin opening their doors.

New On-Site Consumption Rules. New rules surrounding on-site consumption have been introduced, with two new terms added to differentiate between a premises where both on-site consumption and retail sales to consumers may occur, and a premises where only consumption may occur but not retail sales to consumers. Retail dispensaries may operate a limited retail consumption facility, with a $3,000 fee to apply for a limited retail consumption facility unless the licensee’s limited retail consumption facility is on the same road and within 200 feet of a public housing facility entrance. Additionally, no more than three on-site consumption licenses may be within 500 feet of each other. 

Cannabis Event Rules. On-site consumption, adult use retail dispensaries, microbusinesses, and ROD licensees may temporarily include the licensed premises of another licensee class to hold a cannabis event where cannabis products may be sold to consumers for a specified period no longer than 30 days. This temporary event activity must be approved by the OCM. This will permit a dispensary to hold an event at, for example, a grow or processing facility where sales and/or consumption is possible with advance approval.

State Level Zoning. The population-based radius restriction between retail cannabis businesses has not been modified. In a municipality having a population of 20,000 or more or 20,000 or less, the radius restriction between a retail dispensary or microbusiness and RO, ROD, or a retail dispensary or microbusiness is still 1000 feet and 2000 feet respectively. However, the CCB now has the ability to waive the radius restriction based on public convenience and advantage standards. The radius restriction between an RO and a retail or microbusiness license will cease to be a requirement after December 2023, meaning a new retail license can be granted within the restricted range of an RO after that time.

Municipal Rulemaking. Municipalities were authorized in the prior draft regulations to adopt local laws and regulations governing the time, place and manner of operating cannabis businesses, but the revised regulations have given “time, place, and manner” a more concrete scope. The following activities are listed as permissible restrictions that may be imposed by a municipality: (i) retail dispensary license hours of operation; (ii) on-site consumption license hours of operation; (iii) historical district visual or architectural integrity; (iv) parking; (v) traffic control; (vi) odor; and (vii) noise.

We hope this summary has been helpful in providing an overview of the latest changes to the New York State adult use cannabis revised proposed regulations. If you have any questions or would like to discuss how these changes may impact your business, please do not hesitate to reach out to one of our attorneys.